How to Legally Terminate an Employee in Saudi Arabia

How to Legally Terminate an Employee in Saudi Arabia

Employee termination is one of the highest-risk HR activities for Saudi employers. Done wrong, it leads to labor court cases, financial penalties, and reputational damage. Done right, it protects the company and respects the employee's rights.

Types of Employment Contracts

Understanding your contract type determines the termination process:

Fixed-Term Contracts

• Have a defined start and end date
• Automatically end on the expiry date
• Can be terminated early — but compensation may be required
• Renewed twice → converts to indefinite term

Indefinite-Term Contracts

• No end date specified
• Require notice period to terminate
• EOS calculated on full service duration

Legal Grounds for Termination (Article 80)

You can terminate without notice or EOS only in specific cases:

1. Employee assaults the employer or colleagues
2. Employee fails to fulfill basic contract obligations after written warning
3. Employee found guilty of dishonesty or breach of trust
4. Employee deliberately damages company property
5. Employee impersonates another person during hiring
6. Employee reveals company trade secrets
7. Employee is absent without valid reason for 30+ days in a year, or 15 consecutive days
8. Employee is convicted of a crime involving honor or honesty

Important: For cases 2 and 7, you must follow the disciplinary process first.

The Disciplinary Process (Required for Most Terminations)

Step 1: Document the Issue

Create a written record of the violation including:

• Date and time
• Specific behavior or performance issue
• Impact on the business
• Witness names (if applicable)

Step 2: Formal Warning

Issue a written warning that:

• Clearly describes the issue
• States what improvement is expected
• Sets a timeline for improvement
• States consequences of non-improvement
• Is signed by the employee (or witnessed if refused)

Step 3: Final Warning (if issue continues)

Issue a second written warning escalating the consequence to termination.

Step 4: Termination Letter

If behavior continues after warnings, issue a formal termination letter that:

• States the effective date
• References prior warnings
• Lists the grounds for termination
• Details the final settlement amount

Notice Periods (Article 75)

If the employer terminates without proper notice, they must pay the equivalent salary for the notice period.

Final Settlement Calculation

Upon termination, you must pay:

1. Outstanding salary — for days worked in the current month
2. Accrued leave — unused annual leave converted to cash
3. End of Service Benefit — per Article 84 calculation
4. Any allowances or benefits specified in the contract

Example:

• Employee with 7 years service
• Basic salary SAR 8,000
• 15 days unused leave
• Terminated by employer

For Expatriate Employees

Additional considerations:

• Exit visa must be arranged by employer
• Final exit must be processed within 30 days
• Work permit cancellation with Ministry of Human Resources
• GOSI final settlement must be processed

Mistakes That Lead to Labor Court

❌ Terminating during sick leave (prohibited) ❌ Terminating a pregnant employee (highly restricted) ❌ Terminating without proper documentation ❌ Withholding final settlement payment ❌ Terminating within 90 days of joining without valid grounds ❌ Not providing written notice

The HRSD Complaint System

Employees can file complaints through:

• Musaned platform (for domestic workers)
• Qiwa platform (for private sector)
• Labor offices across Saudi Arabia

HRSD processes most complaints within 21 days. If unresolved, they refer to labor courts.

Best Practice: Severance Negotiation

For senior employees or sensitive terminations, consider a voluntary separation agreement that:

• Offers enhanced EOS beyond the legal minimum
• Includes a mutual non-disparagement clause
• Requires the employee to sign a full release
• Is witnessed and legally documented